Sales  Suppression  &  Detection  

Agenda  

•  Scope of the Problem

• Methods of Sales Suppression

• What California is doing

• How we can work together

Scope  of  the  Problem  •  Losing billions of dollars •  Technology has changed the game •  Vendors pushing suppression •  Schemes are more elaborate •  Suppression becomes the social norm •  Enforcement has lagged behind •  Users are more brazen because they think they

can’t get caught

New  York  Sting  Operations  

Evolution  of  Sales  Suppression  •  Common Schemes •  Phantom-ware (internal) •  Zappers (external) •  Sales Suppression as a Service

Common  Schemes  

•  Reusing the same invoice. •  “Void” without delivery of invoices / non-registration of

the invoice / “no sale” / drawer opened manually. •  Training mode. •  Cancellation / refund / discount / no charge. •  Invoice or bill credit (negative). •  Transfer of items. •  Redistribution of invoices. •  Re-print invoices.

Phantom-­‐ware  and  Zappers   Phantom-ware ▫  Internal - Factory-installed phantom-ware

Zappers ▫  External – CD’s, USB’s, etc

Internet Programs ▫  In the Cloud

Most POS systems are already programmed to allow fraudulent use

Sales  Suppression  as  a  Service  •  Manipulation is a service

•  Provide service remotely

•  Installer keeps access to system

•  Installer maintains original data second set of books

remotely – often in a different state

What  California  is  Doing  

•  Research and Findings

•  Audit

•  Legislation

• Outreach

• Next Steps

California’s  Research  

•  POS Systems

▫  Download manuals

▫  Identify systems in use in the area

•  Understand restaurant industry

•  Understand audit techniques to detect suppression

•  Determine impact to California

California  Findings  

• Regional hot spots

• Restaurant type/theme

•  Identified types of systems in our region

• Mostly cash

• Most built into system

California  Findings  

• Over 100 restaurants

•  14 different software systems found.

•  10 software systems have resulted in multiple

suppression cases.

California  Audit  –  Tools  and  Skills  Tools •  POS Software for Hands-On learning

Skills •  Training •  Audit selection and audit techniques •  Auditor conversations with taxpayer •  Social Media •  Audit documentation

California  Legislation  •  Crime to sell, purchase, install, transfer or possess in

California, for commercial gain.

•  Up to 3 years in jail and up to a fine of $10,000.

California  Outreach  •  Multiple messages aimed to Educate and Deter •  Multiple methods ▫  News releases ▫  Press conference ▫  Email blasts ▫  Publications ▫  Industry Guides ▫  Articles in CA Restaurant Association

California  Next  Steps  

Move up the chain.

How  can  we  work  together?  

•  Continued Networking

•  Training for Trainers

Training-­‐for-­‐Trainers  for  Other  States  

2-day Training for Trainers class in October or November Two types of classes:

1.  Supervisor Class (conceptual training, audit selection, theory on undercover buys, program implementation)

2.  Staff Class (POS theory and hands-on training)

Contact  Information  Jeffrey McGuire, Deputy Director Sales and Use Tax Department Board of Equalization, CA Jeff.McGuire@boe.ca.gov

Training for Trainers BOE-Symposium@boe.ca.gov

Warren Klomp, POS Lead Sales and Use Tax Department Board of Equalization, CA Warren.Klomp@boe.ca.gov